Terrified banks stopped lending money to homebuyers with bad credit as more than #56billion was wiped off Britain's biggest companies yesterday.

Stock markets went into meltdown as shares plunged across the world following a housing crisis in the US.

The FTSE 100 index nosedived 232 points in its biggest one day fall for four years.

The turmoil forced four big lenders to stop loaning to people with bad credit history's, fearing they will not get their money back.

In the US, millions of homeowners with bad credit have failed to repay loans. Banks have lost millions of dollars.

Economists fear the same could happen here and hit house prices. Howard Archer, of Global Insight, said: "There is a danger that financial market turmoil and tighter credit will hurt the mortgage and housing markets.

"This increases the risk that the UK housing market could see a sharp slowdown." Hardest hit by the share plunge were big banks and mortgage companies, particularly the Halifax, Natwest/RBS, Barclays and Northern Rock. They have already started getting tough

First hit are homebuyers with poor credit ratings.

Melanie Bien of Savills said: "Banks are starting to get very worried... they are realising that once someone starts missing payments they are likely to keep doing so."

Gordon Brown played down the threat. He said: "We cannot insulate ourselves from events happening in the world."